(Un)Reliable Energy Supplies - Transportation

The world’s level of dependence on petroleum for its transportation needs is concerning for a number of reasons, including the reliability of this energy supply. Even with recent reductions in fuel imports, half of the oil used in the U.S. transportation sector today is produced in other countries. This introduces questions regarding the reliability of our energy supply, and what we might do if our existing supply systems fail.

A reliable energy supply is one that is available when we want it – it is not prone to failures, outages and disruptions. And, ideally, this system is also resilient, meaning that if disruptions do occur, the system can recover quickly. A reliable energy supply does not have to be domestic, but it has to have a high probability of being a predictable and stable resource.

Without including unconventional resources, the world’s top 17 countries (in terms of oil reserves) have an estimated 1.2 trillion barrels of oil in the ground [1] or more than to more than 100 years at current consumption rates [2]. The majority of this crude oil is found in the Middle East, though there is some uncertainty regarding the validity of these data given the strong interest that this region has in maintaining its perceived reserve superiority.

Figure: World Oil Reserves by Region [3]

What is certain is that oil is a non-renewable resource (at least on the timescale that we live in). It is also true that the oil that being produced around the world is becoming increasingly difficult to get out of the ground. A century ago, companies could skim oil from surface seeps. Now, they drill miles into the ground from floating platforms in the ocean. And, with each level of increasing difficulty, the oil that they produce becomes more expensive.

Even if there is enough available and economic oil in the world’s reserves to continue a steady supply of oil into global markets in the near-term, there are still reliability concerns. These concerns stem from the fact that crude oil is largely not produced where it is consumed, which has created a world market that is susceptible to a wide array of disruptions. Today, crude oil is produced all over the globe, with Russia, Saudi Arabia, and the United States topping the list.

Figure: World’s top oil producers (thousands of barrels per day) [4]

This oil is consumed all over the world, primarily in the United States, China and Japan. Noticeably, there is a mismatch between the world’s top oil producers and oil consumers. And, while the United States ranks in the top three on both lists, it only produces about half of the crude oil that it would need to supply its demand. The same is true for Chinese demand, with more than 50% of its oil demand being supplied by other countries, in spite of the fact that China’s consumption is less than half of the U.S. consumption.

Figure: World’s top oil consumers (thousands of barrels per day) [5]

This mismatch between oil supply and demand leads to concerns surrounding supply reliability, as it removes direct oil supply control from the countries that use it. This lack of control introduces doubts regarding the stability of the supply, especially when many of the world’s oil exporting nations have unpredictable and unstable government structures.

In the United States about half of the petroleum that the nation demands is imported from other nations [6]. Of these imports, about half (49%) comes from the Western hemisphere. The remaining oil is imported from Africa (23%), the Persian Gulf (18%) and an assortment of other nations (10%).

Figure: About ½ of U.S. petroleum is imported, and about ½ of these imports come from the western hemisphere

In the United States, we have tried to hedge against the risk of supply disruptions in two main ways: by reducing our demand for imported fuels and by maintaining emergency fuel reserves.

Reducing U.S. Demand for Imported Fuels

U.S. demand for petroleum imports peaked in 2005, due in part to reductions in consumption of both gasoline – in favor of domestically produced biofuels - and, more broadly, transportation fuels. Three years later, with the economic downturn in 2008, oil demand continued to decrease. This latter reduction was in part due to efficiency improvements, including federal mandated fuel economy standards, and changes in consumer behavior. Shifts in economic growth patterns also played a role, as the nation responded to rising unemployment and a stagnant national economy. This overall reduction also coincided with an increase in domestic oil production, resulting in a significant drop in petroleum imports.

Figure: U.S. Petroleum net imports have dropped since 2005

The United States currently maintains a domestic refining capacity of 17.7 million barrels per day, its highest capacity since 1982. The U.S. added more than 1 million barrels since 2001. Almost half (49%) of these refineries are located along the Gulf Coast, a convenient fact given the location of the nation’s petroleum reserves, as we will discuss in a moment.

Figure : Crude Oil Refining Capacity at U.S. Refineries in 2001 and 2011 by region

These refining facilities convert crude oil into many end products, including the gasoline, diesel and jet fuel that are used by the nation’s transportation fleet. While a portion of this crude oil is from domestic resources, imported petroleum still represents the majority of the U.S. crude oil supply. So, the nation has responded to this vulnerability by maintaining a reserve of oil for emergency situations to buffer the nation against supply disruptions.

U.S. Emergency Fuel Reserves

The fear of disruptions in the nation’s oil supplies are very real, and have left the nation to take steps to protect itself. The U.S. Strategic Petroleum Reserve (SPR) is a crude oil storage system maintained by the Department of Energy in order to avert economic shutdown in emergency situations that threaten the nation’s access to oil [7]. Consisting of a series of 62 underground caverns (within salt deposits) along the Gulf Coast, the U.S. SPR currently holds more than 700 million barrels of oil [8]. At the current U.S. consumption rate of about 20 million barrels per day, the SPR and its 700+ million barrels of oil could supply the country’s fuel needs for just over a month without conservation efforts or restrictions [9].

Photo: U.S. Strategic Petroleum Reserve sites are located along the Gulf of Mexico from Texas to Louisiana [9]

These reserves have not eliminated the potential reliability problems associated with heavy dependence on imported energy resources. But, it has provided the nation with a small amount of backup to buffer the impact of disruptions to the world’s oil supplies.

Even with the nation’s recent reductions in oil imports and its existing reserve capacity for crude oil, the U.S. transportation fuel supply is still susceptible to disruptions. Today, the nation has a limited ability to control its oil supply chain, leaving it dependent on many other nations. Until we figure out how to establish a reliable fuel supply for the U.S. transportation fleet, we will be faced with the difficult question of “what can we do if our existing supply systems fail?” – and the answers to this question aren’t easy.

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